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R&D Tax Incentive set to boost business R&D spend in New Zealand

Introduced earlier last year, the R&D Tax Incentive is the Government’s billion-dollar flagship programme to help businesses offset the cost of doing research and development (R&D) in New Zealand.

Minister of Research, Science and Innovation Megan Woods says that investment in research and innovation is the main route to a more productive, sustainable and inclusive economy. “We want to foster an R&D culture. Supporting good ideas through R&D will enable New Zealand to develop solutions to local and global problems, increasing our expertise here at home and creating more high-value jobs.”

The new R&D Tax Incentive website has been introduced to help build businesses’ understanding of the benefits of undertaking R&D and to encourage more businesses to invest in it. The R&D Tax Incentive is jointly administered by Inland Revenue and Callaghan Innovation, and information on the new website has been developed collaboratively by both agencies.

Designed for busy business-decision-makers, the hub features an easy-to-follow introductory guide to R&D Tax Incentive eligibility and a step-by-step overview of how to apply. Information about other government R&D funding support is also available on the website. R&D success stories will be regularly added to the hub as a source of inspiration for business innovators.

The new R&D Tax Incentive offers businesses a 15% tax credit for eligible R&D spend up to $120m. A minimum threshold of $50k per year applies – or less, if the eligible R&D work is undertaken by an approved research provider (this could be a university, Crown Research Institute, or other independent research organisation that has the facilities and technical knowledge to perform core R&D).

The Government aims to boost R&D spending as a percentage of GDP from the current 1.3% to 2% within a decade – even then, that figure will lag the OECD average of 2.38%. “Work to increase R&D spending to 2% of GDP over 10 years was part of the Coalition Agreement between Labour and New Zealand First. This incentive puts us on the path to achieving this goal,” says Minister Woods.

Revenue Minister Stuart Nash says these R&D Tax Incentive features strike a balance between including as many businesses as possible in the scheme and upholding the integrity of New Zealand’s tax system. “We have learned from international best practice how to incentivise R&D expenditure and retain trust and confidence in the tax system. The new policy meets the rigour of international schemes, and will support businesses to undertake genuine R&D.”

To meet this GDP target, Minister Woods says “we need to get behind all of our businesses. Right now, many businesses are investing in R&D, but because they’re yet to turn a profit – which is typical for the first few years of a new business – their access to tax credits is limited.”

She announced proposed changes to give better access to the R&D Tax Incentive for loss-making and pre-profit businesses as part of The Taxation (KiwiSaver, Student Loans, and Remedial Matters) Bill, introduced to Parliament in June 2019. For the 2019/2020 tax year, the R&D Tax Incentive will be refundable to some companies currently in loss, or without enough tax to pay to use all their tax credits. The Taxation Bill changes would mean more businesses claiming the R&D Tax Incentive will be eligible for refunds of their R&D tax credits from the 2020/2021 tax year onwards.

According to Minister Nash, “We received a lot of feedback from businesses that it was particularly important to include a form of refundable tax credits for startups and loss-making businesses in the first year of the R&D Tax Incentive. This is why we have introduced a temporary measure that will mirror the current R&D Tax-Loss Cash-Out scheme. I can assure all businesses that having a more comprehensive form of refunds in the R&D Tax Incentive is a high priority to have in place for the 2020 tax year.”

Under the proposed plans for refundability, a pre-profit startup investing $200k in eligible R&D would be entitled to get back $30k of its investment in cash – so long as it met the broader conditions.

To learn more about how the R&D Tax Incentive supports business R&D, visit rdti.govt.nz.

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